Intermountain Healthcare and SCL Health signed a letter of intent to merge, the not-for-profit health systems announced Thursday.
The combined $11 billion health system would operate 33 hospitals, run 385 clinics and employ 58,000 caregivers across six states. Their service areas do not overlap, and the deal shouldn't trigger any traditional antitrust concerns around hospital mergers, Intermountain CEO Dr. Marc Harrison said in a conference call with reporters.
"We have no geographic overlap and minimal payer overlap—if you can find two systems that are as committed to keeping costs down please show them to us, in the context of good quality," he said. "In many ways, we represent the model merger. We are trying to do the right thing; we're trying to move toward value, which has been one of the hallmarks of the Biden administration."
Harrison will be the president and CEO of the merged organization, which will be named Intermountain Healthcare. SCL Health CEO Lydia Jumonville will remain in her current role during an expected two-year integration process, while also serving on the board that will represent the combined system. Salt Lake City-based Intermountain and Broomfield, Colorado-based SCL Health plan to sign a definitive agreement by the end of this year and close the deal in early 2022, pending regulatory approvals.
Intermountain Health planned a merger with Sioux Falls, South Dakota-based Sanford Health last year that would've created a 70-hospital system with $15 billion in annual revenue. But that deal collapsed after Sanford's then-CEO, Kelby Krabbenhoft, said he didn't need to wear a mask because he couldn't transmit COVID-19 after contracting the disease.
SCL Health is a Catholic-sponsored entity, and mergers between religious and secular systems can cause friction. Catholic health systems forbid certain procedures, such as abortion, gender-affirming surgery and physician aid in dying.
Under the letter of intent, SCL Health's seven Catholic hospitals will retain their names and continue to operate according to existing practices. SCL Health also operates a secular hospital in Colorado.
"This is an integration with a faith-based system; we have seen other situations where community or stakeholder reaction could derail those," said Jennifer Perry, managing principal of FMG Leading. "Providing internal and external forms of communication regarding strategic objectives and the operating model would be an important area to address to successfully integrate."
Pent-up demand from a relatively quiet 2020 is expected to boost hospital transactions this year and into 2022. Scale helped organizations weather the pandemic as they shifted resources based on demand and generated more of a financial buffer.
But key members of President Joe Biden's administration have historically been tough on hospital mergers, particularly Vice President Kamala Harris and Health and Human Services Secretary Xavier Becerra when they each served as California attorneys general.
The Biden administration has vowed to crack down on mergers, including those between hospitals, that would stunt competition. Federal authorities and policymakers also aim to make lopsided markets more competitive by increasing the Federal Trade Commission's and Justice Department's budgets, adjusting the standards for permissible mergers, limiting the use of non-compete clauses and bolstering retrospective merger analyses, among other actions.
While cross-state mergers typically receive less antitrust scrutiny, there are still anticompetitive concerns, research shows.
There were no significant price changes resulting from mergers between hospitals in different states, according to 2018 research conducted by Northwestern, Harvard and Columbia universities. But market power may arise from combinations over broad geographic areas due to a common customer base, often large employers looking to cover their employees in different regions, which ultimately reduces competition, researchers said.
A merger between hospitals negotiating with the same insurer can inflate negotiated prices even if the hospitals are not substitutes, they concluded.
"I don't see this as an anticompetitive issue because it is not an inside-market merger," said Jeff Goldsmith, president of the healthcare consultancy Health Futures, noting that Intermountain aims to extend its footprint. "The thing I have trouble understanding is that SCL hospitals are really great performers. What is Intermountain going to do to make them stronger? How are the patients in the communities affected by this merger and their direct care providers going to benefit?"
Deals like these generate tens of millions of dollars for transaction brokers, consultants, legal counsel and technology vendors, Goldsmith noted, adding that C-suite compensation often doubles when the mergers are finalized.
Hospital executives claim that mergers reduce costs, increase access and improve quality. But savings, particularly in supply chain spending, are often diluted in far-flung organizations, research shows. Hospital mergers only saved acquired hospitals 1.5% on supply chain expenses a year, according to a 2018 working paper from the University of Pennsylvania's Wharton School. Most of the savings were gleaned from neighboring hospitals that bundled expensive physician-preference items.
Intermountain Health reported a $378 million operating income on revenue of $7.74 billion in 2020, up from $374 million of operating income on revenue of $6.95 billion in 2019. The company received $220 million in COVID-19 relief grants last year.
SCL Health reported a $104.7 million operating income on revenue of $2.88 billion last year, a decline from $148 million of operating income on revenue of $2.85 billion in 2019. The health system collected $121 million in COVID-19 relief grants in 2020.
